Case Studies

6 min read15 Mar 2023

Case Study: Mortgage-free at 37 (and on a single income)

Here’s how the pair became mortgage-free at 37 and planned for retirement.

Author: Laine Moger

Journalist and Property Educator, holds a Bachelor of Communication (Honours) from Massey University.

Reviewed by: Ed McKnight

Our Resident Economist, with a GradDipEcon and over five years at Opes Partners, is a trusted contributor to NZ Property Investor, Informed Investor, Stuff, Business Desk, and OneRoof.

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Kris and Leanne were living on just one income, but were beginning to feel crippled by their two mortgages.

They were so focused on their mortgages … they hadn’t even considered investing for retirement. That scared them.

Here’s how the pair became mortgage-free at 37 and planned for retirement.

Everything in this case study is true to life (goals, salary, property prices, the Opes financial adviser they used). Only the names have been changed to protect their privacy.

Do you have a question or comment about this case study? Feel free to leave your thoughts in the comment section at the end of the page

Who are the investors?

Married couple Kris and Leanne have three young kids. They live in their family home in rural Waikato.

They’d relocated from Taupo 8 years ago, and when they moved they rented out the property they’d lived in there instead of selling.

Kris earns $100k a year in a management role, enabling Leanne to stay home and look after their young family.

But two things were starting to scare them.

First, their parents were newly retired. And because they hadn’t planned for retirement, they were going through a hard financial time. Kris and Leanne wanted to avoid the same fate.

Secondly, the pair wanted to be mortgage-free on their own home.

At the time, they had two mortgages … one on their own home and one for their investment property (the one in Taupo they used to live in).

But the Taupo property wasn’t doing very well. It hadn’t increased in value much. But, worst of all, the cashflow was terrible. Kris and Leanne had to pay a lot of money to cover the second mortgage.

Something had to be done. So the pair came to see Kathy, one of our financial advisers at Opes Partners.

By working with a financial adviser the pair became mortgage-free on their own home and put a plan in place for retirement.

How Kris and Leanne became mortgage-free

Some investors think that selling an investment property is a step backwards. It isn’t always.

Sometimes, selling a property is the right move, especially if you redirect that money from a bad investment into something else.

In Kris and Leanne’s case, selling their under-performing Taupo property was the first step. It hadn’t grown in value, and the cashflow was terrible.

They then used the money from the sale to pay off their home mortgage.

Before selling the Taupo property, the two mortgages were structured like this:

Their newer rural Waikato property (the one they actually live in) had a very high mortgage
The Taupo rental property had a very low mortgage.

This is a typical property structure investors have, mainly when turning a former owner-occupier into a rental.

However, this is not the right way to set up your mortgages.

You want the opposite. It’s generally better when your home mortgage is as low as possible, and your debt is structured against your investment properties.

This means:

You can often borrow more to invest in property
You’ll usually pay less tax
And your own home will be more secure

By selling their Taupo property, they could fix this situation.

But regardless of the mortgage question, the Taupo property was under-performing. So, Kris and Leanne needed to get rid of it.

And that’s what they did. They used the extra money to pay off their mortgage. And at 37, the couple were now mortgage-free.

How Kris and Leanne created a retirement plan

Being mortgage-free is excellent. But Kris and Leanne also wanted to plan for their retirement.

This became more urgent, as the Taupo property was a big part of their plan. So, after Kathy, their financial adviser from Opes, helped them sell their property, it was time to look at the retirement plan.

Step #1 – How Much Money would Kris and Leanne need in retirement?

To create a property investment plan you need to figure out what you’re investing for (your goals).

Once you have your goals figured out, you can create an investment plan to meet them.

Kris and Leanne decided they wanted:

$100k passive income

An early retirement

To be mortgage-free

And to have financial independence in retirement

They were already mortgage-free, and they would achieve financial independence by building their $100k in passive income.

So, they decided to create a plan to build a $100k passive income within the next 25 years – by the time Kris turns 62.

The pair decided to use the Golden Goose strategy. This is where investors build their assets. And in the end, own high-yielding properties with very low mortgages.

They then live off the rental income from the properties.

To get a $100k passive income, you need $2.5 million of net assets. That’s because, here at Opes Partners, we assume you can get a 4% net yield on your assets.

So Kris and Leanne knew they needed to create $2.5 million of assets within the next 25 years.

Step #2 – How many properties would Kris and Leanne need?

To hit this level of assets, Kathy calculated that Kris and Leanne would need to purchase 4 investment properties over the next 13 years.

They’ll start with a growth property, then another growth property. After this, they’ll purchase a yield property. They’ll then round this out with another growth property.

Over the 25-year period it’s projected this will create $2.9 million of equity (even after paying real estate agent and lawyer fees). This is then expected to create a passive income of $116,000.

In buying growth and yield properties, Kris and Leanne intend to create a Wealth Wheel; see more below.

Can Kris and Leanne really buy 4 investment properties?

If you’ve been reading our articles for a while, you may have noticed a disconnect:

Kris and Leanne plan to buy 4 properties
But their household income is only $100k

That’s not enough money to buy 4 properties. The bank will likely say “no” after they buy their first investment.

There are two things to point out:

1) You need to get started

Many property investors think: “I need to buy 4 properties to sort out my retirement … but I can only buy one now … how’s that going to work?”

Because of this, some property investors who want to grow a portfolio of properties won’t even buy their first. They get too distracted thinking about how they’ll buy their 4^th or 5^th property.

You build a portfolio of 4-5 properties by buying your first one.

This starts the process of building your wealth. Over time the rent (and your income) will increase, eventually putting you in the position where you can buy your next property.

Remember, Kris and Leanne’s goal isn’t to buy 4 properties this year. It’s to buy 4 over 13 years. On average, that’s one property every 3 and a bit years.

2) Kris and Leanne can increase their income (and you can too)

To continue buying properties, Kris and Leanne will also increase their incomes.

Here at Opes we call this strategy the Earn, Baby, Earn, which focuses on building your income so you can borrow more.

For instance, right now Kris and Leanne are on one income. But Leanne plans to return to work at some point (when the kids are older).

Kris will also work his way up the ladder and increase his salary.

As mentioned above, the rental income will also increase, helping them to borrow more.

To ensure the plan eventuates, the couple will also work with their financial adviser (Kathy) to continually see when they’ll be able to buy their next property.

Next steps

Kris and Leanne’s experience might resonate with many investors just starting out.

They made themselves mortgage-free before they were 40. And this puts them in an excellent position to invest.

They’ve got a long road ahead of them, building $2.5 million of assets over the next 25 years. And for some people, this can feel like an impossible task to start.

But if they can buy 4 properties over 13 years, the financial modelling suggests this can become a reality.

Want the same service as Kris and Leanne?

Your next step is to book a portfolio planning session. This is where you and a financial adviser will create you a financial plan.

Book your free session

Laine Moger

Journalist and Property Educator, holds a Bachelor of Communication (Honours) from Massey University.

Laine Moger, a seasoned Journalist and Property Educator with six years of experience, holds a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism. She has been an integral part of the Opes team for two years, crafting content for our website, newsletter, and external columns, as well as contributing to Informed Investor and NZ Property Investor.

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